Choose the right loan

1.    First, decide between a fixed rate and a variable rate. Variable rate loans generally have a low initial rate, which will remain fixed for a period of time and then change periodically.

For example, a 5/1 ARM will have a fixed rate for the first 5 years of the loan, and then the rate will change every year thereafter. A fixed rate loan will have the same rate - and payment - throughout the life of the loan.

Variable rate loans are a good choice if you are not planning on living in the home for a long time, or if interest rates are currently high. A fixed rate loan is a good choice if you plan on living in the home a long time, or if interest rates are
currently low.

2.    Decide how much you want to put down The more money you have for a down payment, the lower your monthly payment and loan balance will be. Many lenders will require that you put down a minimum of 3% as a down payment, although there are loan programs that will allow for smaller down payments, under special circumstances.

If you are able to afford 20% of the purchase price for a down payment, you will generally avoid paying private mortgage insurance (PMI). This insurance will raise your monthly payment and is not considered tax deductible. With a 20% down payment, you may also qualify for a lower interest rate. Be sure to ask your lender if your rate can be reduced with a larger down payment. 3.    Understand the fees The only way to get a complete picture of the mortgage fees is through the Good Faith Estimate (GFE). Be sure to ask your lender for a GFE before you commit to a loan. This document will list all the expected fees and pre-paid expenses you will need to pay at or before closing.

Comparing fees and interest rates to make the best decision is often difficult, but there is one piece of information that makes the process easier. The Annual Percentage Rate, or APR, combines all the fees and interest expenses over the life of the loan into one number. Generally, a loan with a smaller APR is the better loan, though the APR for a variable rate mortgage may not always represent the likely future cost of the loan. 4.    Pick your points Most lenders will allow you to pay extra points in order to decrease the interest rate on your loan. Generally, a point is equal to 1% of your loan balance, or $1,000 for a $100,000 loan.

When you are thinking about paying points, you need to consider how long you plan to live in the home. If paying 1 point or $1,000 reduces your monthly payment from $675 per month to $625 per month, you will need to stay in your home for 20 months to earn back that $1,000 you've paid up front. 5.    Lock your rate The interest rate is not yours until you've locked your rate. Mortgage rates change every day, sometimes more than once, and until your lender has locked the rate on your loan your interest rate will change too.

Deciding when to lock can be tricky. If you are happy with the current rate, then you should probably lock it in. That will protect you in case interest rates rise. If you want the rate to be lower, you can hold off, but your rate might go up as well as go down while you wait.

When you do lock, make sure to get a written confirmation from your lender that the rate is locked. This confirmation should contain the rate and expiration date of the lock. This will ensure there are no misunderstandings about the details of the loan at a later date.

Finding the best mortgage

There are dozens of mortgage products available. Here's help in picking the one that's right for you.

Home buyers can choose from many different types of mortgages. The basic models are fixed rate mortgages and adjustable rate mortgages or Arms More choice is created when lenders vary the term of the loan, change the way the principal amount you owe is paid off or amortized, or add features such as a conversion option or prepayment privilege. In addition to the traditional 30-year fixed rate mortgage, there are dozens of mortgage loan products available, from adjustable rate mortgages to interest-only and negative amortization loans.

Take this scenario: you and your partner both earn good money and expect your salaries to rise. You plan to move in five years and expect interest rates to stay about the same or even fall during that period.

Under these circumstances, you might choose a five-year balloon loan.

A five-year balloon is a good choice because the term matches the length of time you expect to own the house. If you sell after five years, you will have no early redemption penalty. If you decide not to move, you can refinance when the mortgage matures, and possibly pay down the principle while you're at it.

Here's another, quite different, scenario that leads to a different mortgage choice: your income is low and/or fixed. You plan to stay in your home for many years, and expect interest rates to rise.

You will likely choose a traditional 30-year fixed rate mortgage. The 30-year term and fixed rate allow you to lock in affordable monthly principal and interest payments for the long term. You know your installments will be manageable, and you will be chipping away at the principal of the loan and building equity slowly but steadily.

With all the options available, there's bound to be a mortgage that suits you and your situation. Powell suggests you talk to a loan officer at your bank about the choices. Taking the time to learn about the process is worth it, because you'll be a better advocate for yourself.

Checklist to get a loan

Here are some documents that you may be required to provide during the mortgage application process:

Employment information . Names, addresses and telephone numbers of all your employers for the last two years. If you are self-employed, you will probably need all business records and tax returns for the last three years.

W2s . These are the forms you get from your employer every year to file your income tax returns. Usually you need W2s for the two most recent years. Other income information, such as Social Security, pension, interest or dividends, rental income, child support and/or alimony, and self-employment income may also be considered.

Pay stubs . Save your pay stubs and furnish those from the 30-day period before the date of your mortgage application.

Federal income tax returns . If you are self-employed, or more than 25 percent of your income comes from commission, overtime or bonuses, you may need to provide complete copies of federal income tax returns you filed for the two most recent years.

Bank statements . You may need to provide statements from all your accounts (checking, savings, mutual funds, money markets, certificates of deposits, 401(k) or other retirement accounts) for the last two months to verify the exact amount of cash you have available for your down payment and other costs associated with your home purchase.

Current debts . Be prepared to provide the account numbers, current balances and the minimum monthly payments of all credit accounts, such as loans, credit cards, child support and other payments you make each month.

Adjustable rate mortgages (Arms)

With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable rate mortgage (ARM), the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.

Pro

- Lower initial interest rates.

- If interest rates remain steady or decrease, could be less expensive over time.

Con

You assume risk of future rate increases.
If interest rates increase, you'll be faced with higher monthly payments in the future.

Basic ARM features
The adjustment period: with most Arms, the adjustment period occurs every one, three or five years, resulting in a change in your interest rate and monthly payment.

The index: most lenders tie ARM interest rate changes to changes in an index rate. These indexes go up and down in accordance with interest rates.

The margin: to determine the interest rate on an ARM, lenders add to the index rate a few percentage points called the margin. The amount of the margin can differ from one lender to another, but it is usually constant over the life of the loan.

Adapted from the "Consumer Handbook on Adjustable Rate Mortgages" published by the Federal Reserve Board and the Office of Thrift Supervision.

Is a home equity loan right for you?

It's always a good idea to save for major purchases, but you don't always know that the fridge is on its last legs until the celery wilts and the ice cream turns to goop.

At times like these, a home equity loan is worth its weight in gold — or fridges.

A home equity loan is a loan that is secured by the equity in your home. You may be able to borrow up to 125 percent of what your house is worth at current market prices, less what you owe on your mortgage. It can be a one-time loan at a fixed rate of interest that you take out for a specific purpose. Alternatively, it can be a home equity line of credit (HELOC) with a pre-agreed ceiling and fluctuating interest rate that you can use for many things over a period of years, paying it down between purchases.

The main virtue of home equity loans and home equity lines of credit is that they carry a lower rate of interest than credit cards and unsecured consumer loans . Why? Because using your home equity as security reduces the risk of a loss for the bank. The interest may also be tax deductible.

Renovations and repairs that will enhance the value of your house are a particularly appropriate use for a home equity line of credit. So is consolidating consumer debts that carry a high interest rate, such as outstanding credit card balances that you find hard to pay. A long-term, fixed-rate home equity loan rate allows you to pay off all your cards in one fell swoop, and leaves you with one predictable monthly payment you can manage — as long as you resist the urge to start charging things again.

It's best to be conservative about how you use a home equity loan. In particular, think twice about buying stocks or starting a new business venture with the money. If the stock price goes through the floor or the business loses money, your home is at risk.

It's also wise to be conservative about how much you borrow against your home. Some lenders may be willing to advance you 90 percent or more of the value of your equity. If house prices in your area fall, so will your home equity and your borrowing limit. Your lender may then call your loan, asking you to pay back any borrowed funds in excess of your new, lower, limit.

Before borrowing, make sure you research the kinds of home equity loans that are available, and ask your lender to explain the details of how they work.

10 reasons to buy a home

Many people — especially singles and young couples who are just starting their careers — have mixed feelings about purchasing a house. They worry about getting tied down and taking on a lot of debt.

Here are 10 compelling reasons why anybody who can afford it should consider buying a home:

Your rights as a consumer

We have provided the following links to the Department of Housing and Urban Development's (HUD) site to help you understand your rights as a homebuyer.

Fair Housing Laws

http://www.hud.gov/offices/fheo/FHLaws/index.cfm

Homebuyer's Rights

http://www.hud.gov/offices/hsg/sfh/res/sfhrestc.cfm

Borrower's Rights

http://www.hud.gov/offices/hsg/sfh/res/resborwr.cfm

Additional HUD Resources

http://www.hud.gov/index.html

Reverse Mortgages

How can you get cash out of your home? One way is to sell - but then you have
to move. Another way is to take out a home equity loan. But then you'll have to pay it back.

A third option - for those 62 and older, at least - is a reverse mortgage , which requires neither a move nor loan payments. Reverse mortgages are gaining in popularity, but are not well understood. They are like conventional mortgages turned upside-down, and the concept is a little difficult to comprehend, at first.

Both conventional and reverse mortgages create debt against your home. But they're distinct in a couple of important ways. A conventional mortgage is a falling debt/rising equity transaction. A reverse mortgage is based on a rising debt/falling equity model.

With a reverse mortgage, the lender sends you cash and you make no repayments, so your debt increases while your equity shrinks. When a reverse mortgage becomes due and payable, all of your home's value will have been turned into loan advances, loan costs, or left-over equity.

While that notion might seem alarming, remember that's precisely what a reverse mortgage borrower needs - the ability to "spend down" their home equity, while they live in their home, without having to make monthly loan payments.

A reverse mortgage comes due and must be repaid when you die, permanently move out (to live with a family member or to a nursing home, in most cases) or sell. Otherwise, you're free to stay in your home as long as you wish. If you pass on, your heirs can pay the loan back, with interest, and keep your home. Alternatively, they can sell it to a third party and repay the lender out of the proceeds (any excess goes into your estate).

You don't need a minimum income to qualify. You could have no income or even still owe money on a conventional mortgage. In fact, some seniors get reverse mortgages to pay off a first mortgage.

The only eligibility requirements are that you are at least 62 years of age and treat your home as a principal residence. (If you own your property jointly, the other owner(s) must sign on to the loan, too.)

You can take receipt of the loan in whatever fashion you choose, including a one-time lump sum, a line of credit, fixed monthly payments for a predetermined period of time, or a combination of the above.

Reverse mortgages are offered by banks, mortgage companies, savings associations and state and local governments. The funds from private-sector loans can be used for any purpose. Government loan programs generally limit spending options to specific purposes, such as home repairs or property taxes. Many public-sector loan programs are only available to homeowners with low or moderate incomes.

Negative Mortgage Amortization

Amortizing part of your interest payment each month can help you weather a short-term financial storm.

It sounds like a mortgage deal too good to be true: your financial institution allows you to reduce your monthly payments to the point where you're actually paying less than the current interest charges due.

It's called a negative mortgage amortization, and if it sounds too good to be true, that's because it is. The money you save on interest now will cost you more later.

Typically, monthly mortgage payments are comprised of interest, which is a charge for the use of the mortgage money borrowed, plus a sum that goes toward the principal and reduces your actual debt. At the beginning of the mortgage term, most of your monthly payment is interest, and a relatively small amount goes toward the principal. Over time, the proportion gradually reverses, and the amount that goes toward your principal increases, while the interest you pay decreases.

A negative mortgage amortization is a type of Adjustable Rate Mortgage (ARM) that allows you to pay less than the full amount of interest due every month for a set period of time, usually a year.

Let's say that your normal monthly mortgage payment is $1,000 and that $600 goes toward interest and $400 goes toward principal.

With a negative mortgage amortization, your monthly payment on the same loan could be $500, which would go entirely toward interest. But you'd still owe $100 in interest plus $400 in principal. The $100 in interest is added to the principal of your loan, and you start paying interest on it, too.

So at the end of the month, you will actually owe more on your house than you did at the beginning of the month, and you will be paying interest on this increased amount until you retire your mortgage.

So your short-term gain - lower monthly mortgage payments - adds up to long-term pain. You end up with more mortgage debt than you had before and greater total interest charges. The longer the period of negative amortization lasts, the more you will owe.

Still, negative mortgage amortization can make sense in certain circumstances. Let's say you have to take a break from work or run into an unexpected expense, but know you'll be on sounder financial footing in the future. A negative mortgage amortization can allow you to put some money toward your mortgage interest and keep your home. Once you're back on your feet, you can arrange to increase your monthly payments to make up for the interest you couldn't pay earlier, and even pay it all off in one shot if you have the money.

The risk is, of course, that your finances won't improve on schedule and you'll eventually be faced with a bigger mortgage you can't afford and a tough decision about selling.

A negative mortgage amortization can also be used to speculate on real estate. You can use one to live in a house inexpensively, while the value increases. You could then sell at a profit and use part of the proceeds to pay off the mortgage. But if the house doesn't appreciate, you are stuck with a great big mortgage.

So think twice about going the negative amortization route. While it can help you cope with a temporary shortage of Funds, it's a risky business.

Why should I check my credit report regularly?

Checking allows you to keep track of your financial progress, and catch credit mistakes and identity theft attempts.

1. To detect identity fraud early

We all know we should check our credit card statements every month for charges that we haven't made. But that only catches the thief who uses an account you know you have. Scan for signs of possible identity theft with your free credit report.

In the past few years, identity theft has risen dramatically. In this insidious form of credit fraud, a thief steals your good credit by taking over or opening accounts in your name, running up large balances and leaving you to deal with the collectors when they come calling.

New accounts opened with your identity will appear on your credit report, revealing identity theft to you. If you don't check your credit report, it could be months before the credit grantor, fed up with nonpayment, turns the account over to a collector who tracks you down and demands payment for a loan you've never even heard of.

As with much less problematic inaccuracies, identity theft is something you can detect and remedy most effectively by checking your credit history thoroughly and on a routine basis.

2. To become an informed consumer of credit services
Your credit report can have a dramatic impact on your financial stability. With good credit, you can obtain benefits of all kinds — a home mortgage or lease on an apartment, an auto loan, low interest credit cards and more — with ease. But if your credit history is poor, many of these financial options may be unavailable to you. Either way, you have a right to know what to expect when a lender runs a credit check on you.

Aside from paying your bills regularly and on time, the single most important thing you can do to ensure that when others heck into your credit they'll find you to be a good risk is to be aware of the contents of your credit report. Check your report for free and approach lenders with confidence.

Studies have shown that many credit reports contain inaccuracies that can harm your credit rating, leading to rejections when you apply for loans, insurance or even a job. Often the result of simple human error, they can be caused by anything from a clerical error to a computer glitch in which your file is mixed with that of someone with a similar name.

That's why it's essential that you check all of your credit reports — and monitor your credit regularly — to protect your good credit standing, even if you always pay all your bills on time.

And if your credit is less than perfect now, checking your report will help you identify lingering problems so you can deal with them effectively and move on toward an improved credit standing. Whatever your situation, reviewing your report regularly is the only way to be sure that you will go into any credit conversations knowing everything lenders will know.

This information is provided in partnership with ConsumerInfo.com, an Experian company.

Rates are Rising - Is it Time for a Fix?

Adjustable Rate Mortgage Loan Interest Rates on the Rise:

On November 15, 2005, one-year adjustable rate mortgage loans rose from the previous week's 5.12 percent to 5.20. Just one year ago, one-year Arms averaged 4.17 percent. That's a big leap, and makes the difference between the 30-year fixed rate mortgage loan and the one-year ARM the narrowest it's been since November of 2001. *

If you currently have an adjustable rate mortgage loan, you know the interest rate changes from year to year and it reflects the current interest rate environment. If interest rates go down, your rate drops, too... and if they go up, so does the adjustable rate on your mortgage. 

According to Bear Stearns, a leading global investment banking, securities and trading and brokerage firm, rates will reset over the next 12 months on about $185 billion in adjustable-rate mortgage loans, and about $141 billion the year after that. 

When Arms adjust, the rate usually moves to match the prevailing market rate, though generally there are limits on how high rates can rise. 

So if the trend seems to be a rising-rate environment, what can you do? Consider a mortgage refinance loan, and lock in a 30-year fixed rate mortgage loan. But if you'd like to keep your payments low, you need to hurry, because while still low by historical standards, the average 30-year fixed rate mortgage loan is at about 6.28 percent, its highest level in more than two years. *

How much will your monthly payment be if you refinance your mortgage now? Visit our simple loan calculator, where you'll find a handy calculator. 

Credit Card Rates Going Up, and New Banking Guidelines Will Make Your Minimum Monthly Payments Higher: 

Mortgage loans aren't the only financial products affected by rising interest rates. Credit card users are about to get hit with a double-punch; higher rates, and a bigger minimum monthly payment. 

New banking guidelines could actually double the amount of your minimum monthly payment. In 2003, the Federal Office of the Comptroller of the Currency, which regulates national banks, instructed banks that issue credit cards to increase minimum monthly payments by at least 1%, which will go directly toward paying down a credit card's principal. 

While this might be good for consumers in the long run by saving them a lot of money in interest, in the short term, coming up with a larger, minimum monthly payment could wreak havoc with a family's budget. 

If you owe a significant amount of money in credit card debt, you might consider paying off those cards with a home equity loan or line of credit.. Even with rates going up, a HELOC interest rate is still lower than the rate on most credit cards, and the interest you pay may be tax deductible (consult your tax advisor). Or, if you want something a little less risky, a home equity loan, with its fixed interest rate, might be just the ticket.  

A home equity loan, or a home equity line of credit - whatever you decide, be careful. If you tie the debt to your house, be sure to make your payments, or you risk losing your home. 

* SOURCE: Freddie Mac, November 28, 2005.

8 Critical Questions To Ask When Choosing A Lender

Rates, lenders and conditions are not always what they seem. Ask some important questions before you choose a loan.

1. What is my APR?

The annual percentage rate (APR) reflects the effective cost of your loan on a yearly basis taking into account such items as interest, mortgage insurance, most closing costs, points and loan origination fees. Because of these other costs, this number is often higher than a quoted rate. Always ask a lender to calculate the APR in order to understand the “true cost” of your loan. If the lender will not or does not openly disclose the APR, chances are they are hiding some costs that will show up at closing. 

2. Who will service my loan?

Often the company initially quoting you rates on a home loan is only a broker or middleman who represents – or will sell your loan to – other banks or lenders who actually “service” the loan throughout its term. In fact, your loan may be sold to other lenders more than once, leaving you with the uncertainty of who to make monthly payments to, where to send correspondence, new account numbers and knowing whether or not payments have been correctly applied to your loan.

3. What are your approval rates?

Nobody likes rejection, especially when you're working hard to find financial solutions. While many of the larger banks may not even offer non-prime loans (for borrowers with less-than-perfect credit), the approval rate for this category of loan is typically lower than for other types of loans. 

4. How big is the institution behind my loan?

Many companies jump into the home loan market when rates are low and loan applications are plentiful, only to disappear and “sell” their loan portfolios when the opportunities tighten up. At any given time there are several newcomers making lots of “noise” about getting you a great loan. For a lender to stay in business for the long run, however, takes expertise, experience and resources.

5. What is my rate lock?

Be careful! When a loan broker quotes you a low interest rate on a 15 or 30 year fixed rate loan, be sure to ask whether that rate is locked for the entire time it takes to close the loan. Often, the rate you are quoted is at a lower, 10- or even 30-day rate – much shorter than the time typically necessary to actually complete all documents, process and close your loan. This can result in a higher rate at closing than what you were quoted originally – a potentially costly difference. Be aware that If interest rates rise and the lock has expired, you'll receive the prevailing rate.

6. What are my loan options?

It's difficult to take control of your financial situation without any choices. Unfortunately, many lenders who offer a home loan program for borrowers with less-than-perfect credit offer just that – a single home loan program. Take it or leave it.

7. How long will it take to approve my loan?

There are few things more stressful than waiting to know if you've been approved for a loan that can change the course of your financial future.

In most cases, once we've received your completed application you will be notified within 24 hours whether or not you have been approved for a home loan. 

8. Are you specialists in servicing less-than-perfect credit loans?

With many lenders, your past is an important part of whether or not you qualify for a new home loan. That's because most lenders aren't specialists in finding solutions for homeowners with less-than-perfect credit histories.

Making the Most of Your Mortgage

Maximize the financial potential of your home loan through education, planning, and creative thinking. Many homeowners aren't aware that there are simple steps they can take to dramatically improve their situation.. Take a look:

13 Months in a Year:  Make an extra mortgage payment each year to pay off your loan faster and you could save thousands of dollars in interest. The entire amount of your 13 th payment is applied directly toward your principal. For example, on a $100,000 30-year fixed- rate loan at 8%, you would save $45,000 in interest payments and shave more than seven years off your loan term!

Paying 30% More:  If you pay an additional 30% toward your mortgage each month, you can make a serious dent in your loan principal. The additional amount is applied to the principal. On a $100,000 30-year loan at 8% a borrower could actually cut their mortgage term in half and reap over $91,000 in interest savings!

Points vs. Lower Interest Rate: When selecting a new mortgage, you usually have the option of paying additional Points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you plan to stay in your home longer than five years, it's usually a better deal to pay the Points. The lower interest rate could save you more in the long run.

Find a loan now

Reducing Debt with a New Home Loan

If you're committed to reducing the interest paid on your personal debt this year you could benefit substantially from cash-out refinancing or a new Home Equity loan. Most credit cards and department store accounts charge an annual percentage rate (APR) well over 10% -- the national average is almost 14%*. With mortgage rates still relatively low, however, you could consolidate your high-interest debt into a new home loan, perhaps at a much lower rate.

*Source: Bankrate.com as of July 5, 2005.

Example:  Let's say a homeowner is swimming in debt with a current monthly mortgage payment of $1132 on a $152,000 loan, and a whopping $900/month owed on their credit cards. This debt could be consolidated with a new $190,000 home loan and the surplus cash used to pay off $30,000 worth of credit card debt. Although the monthly mortgage payment would increase slightly to $1361, the total aggregated monthly payment expense would be reduced by $670! 

This Payment Reduction example assumes paying off an existing 30-year fixed mortgage of $152,000 at 7.95% (P&I only), and credit cards totaling $30,000 with an average APR of 13.40% (current National average as of 07/06/05, Bankrate.com) making minimum monthly payments of 3% of the outstanding balance. The new refinance loan assumes a final loan amount including payoffs and loan fees of $190,000 with a 3 year fixed adjustable rate mortgage (3/27) 3 year pre-pay, 2 points at 7.75%, 8.87% APR (P&I only). Loan fees vary by state and loan-to-value of 70.00%, owner occupied, single family residence, pre-payment penalty allowed where state laws permit. This is merely an example and does not constitute a commitment to lend.

Financial Facts and Figures

Navigating the wide variety of refinancing options can be a confusing and sometimes frustrating process. If your chief concern is improving your monthly cash flow with lower debt payments, consider the length of the time you plan to remain in your home.

Example: A homeowner wants to refinance a $200,000 loan balance and can choose between a fixed-rate mortgage (FRM) with a 30- or 15-year term, or a 5/1 adjustable-rate mortgage (5/1 Interest Only ARM).

$1,231/month  With a 30-year FRM at 6.25% (6.287% APR, 0 points and $2,490 in estimated closing costs), the homeowner's monthly mortgage payments would be $1,231. Over the life of their loan, they would pay over $250,000 in interest for the life of the loan.

$1,688/month  A 15-year FRM at 6.00% (6.06% APR, 0 points and $2,490 in estimated closing costs) would increase the monthly payments to $1,688/month, but the interest paid over the term of the loan would be about $158,000 less .

$979/month for the first 5 years.**  A 5/1 Interest Only ARM at 5.875% (6.305% APR, 1.75 points and $3,500 in estimated closing costs) would decrease the monthly payment to $979/month for the first 5 years.

So to review, in making your decision to refinance, a good first question you could ask yourself is “how much can I afford to pay on a month to month basis?” The second question could be, “how much longer will I stay in the house?” Many homeowners anticipating staying in their homes for 14 years or more, often lock in a longer term fixed rate. Homeowners planning to move within 5 years or anticipating family growth or change in income have often preferred a 5/1 ARM, where they can fix a rate for 5 years and then it adjusts every year after that. These are just a couple of examples of many solutions. Be sure to consult your home loan advisor to determine what's right for your personal situation.

**Total monthly payment does not include tax or insurance fees that are not collected in a Countrywide escrow account. Estimated payments are set for the fixed period only. Interest rates are examples of rates effective as of 7/12/2005, such rates are subject to increase without notice, and are for informational purposes only. This is not a commitment to lend . ARM rates are subject to increase after the five year fixed period of the 30-year Hybrid ARM loan. The loan is then fully amortized over the remaining term as an adjustable-rate mortgage that adjusts every six months or once a year, depending on the program chosen by the borrower at time of closing. Any rate increases will make monthly payments higher after the five year fixed period. Payment example assumes 1.75 discount points are paid. At the time an application is approved, the interest rate is locked in for the sooner of 60 days or the date of the loan closing and remains locked until the first adjustment period. Rates are subject to change. Until a borrower obtains a rate lock, any market rate increases may lower the borrower's approved loan amount.

Does the 2% Rule Still Rule?

Long ago, back in the days of rotary telephones, record players and CB radios, it was common to hear financially savvy people say that you shouldn't refinance a home mortgage unless the interest rate of the new mortgage was at least a 2 percent lower than the existing rate. “It just doesn't make economic sense,” they'd say. But like 8-track tapes, those days may very well be gone.

Today the so-called 2-percent “rule” is simply a guideline to help you figure out how soon you could recover any expenses incurred with a new loan with the money you save due to your new, lower monthly loan payments. In fact, the larger the percentage gap between your present interest rate and a new interest rate the quicker you could make up any standard refinancing charges such as the loan origination fee (points), appraisal, title insurance and others,

You can do two things to analyze your situation. First, add up the fees, divide that amount by the amount of money your new lower monthly payment will save you each month. That figure is how many months it will take to recover any costs incurred by refinancing

Here's the formula:

Second, have your loan consultant compare the total interest due over the course of your current loan against the total that would be due under the proposed loan as the total number of monthly payments and the total amount paid can increase with a new loan.

*Refinancing or taking out a home equity loan or line of credit may increase the total number of monthly payments and the total amount paid when compared to your current situation

How Cash Out Refinancing Can Pay Off In A Big Way

Home owners with high balances on multiple credit cards can often pay off those credit cards and other debts by refinancing their existing home loan.

Let's look at how refinancing can pay off debt, and help you save on monthly mortgage and credit card payments,

If a homeowner with the financial scenario above consolidated his/her higher interest, debt using the equity from their home, they could take out from their home, then that that homeowner would have an overall mortgage payment each month of only $1,361, with total monthly savings of $670.75!

Note:

The above scenario is based on the following loan terms: a 3 year fixed adjustable (3/27) 3 year prepay, 2 points 7.75% Interest with an 8.87% APR for a total monthly payment of $1,361.18. Does not include tax and insurance. Credit card payment assumes 3% of balance.
.

Anxiety-free home buying

Break a complicated task into smaller steps and it becomes much easier to handle.

Buying your first home is a thrilling experience, but you may also feel a little overwhelmed, too, when you consider everything there is to learn and do - not to mention the expense of the mortgage you'll be taking on.

For starters, you've got to understand all of the ins and outs of the local housing market. That means learning about home construction and maintenance as well as price trends in the neighborhood you've got your eye on.

Then there is the financial side of things. You'll need to get a good handle on your own finances and find out how interest rate movements and different mortgage features affect what you can afford to spend.

You can't afford to make ill-informed decisions, because you are going to borrow a very large sum of money that will probably take you many years to pay off.

If that weren't enough, you've got to find a real estate agent you are comfortable working with.

Luckily, buying a home - like many complicated tasks - becomes much easier when you take it one step at a time.

SimpleLoanQuote can help you do just that. We've broken the process down into the following steps:

1. Check your credit rating.
2. Do a budget.
3. Get pre-approved for a mortgage.
4. Find a real estate agent to help you.
5. Determine what you need in a home and shop until you find it.
6. Find the right mortgage for you.
7. Make an offer and negotiate a purchase price for your home.
8. Get a home inspection and appraisal.
9. Arrange insurance.
10. Close the deal.
11. Move into your home.

Follow these steps that will help you stay on track - all the way home.

Discount Points

Discount points are paid up front to obtain a lower interest rate on your mortgage. The more points you pay, the lower the rate you obtain. Typically, one point equals one percent of the loan amount, and will lower the interest rate by .25 percent.

PRO:

Paying points may be advantageous if you intend to hold the property for a long time.

CON:

If you intend to hold the mortgage for a short period of time, the cost you pay up front may exceed the benefit you'll receive from a lower rate.

To get an idea of whether or not it is worth it to pay points, divide the amount paid in points by the amount saved by having lower monthly payments.

For example: If you are borrowing $100,000, you can pay no points at 7% interest for 30 years, which is roughly $665 per month. Or you can pay 2 points for a 6.5% interest rate, which is roughly $632 per month. Your savings per month would be $33 ($665-$632).

The amount you pay for two points would be about $2,000 (one point is one percent of 100,000 or $1,000). Following the formula:

$2,000 (amount paid for points) / $33 (savings per month) = 60.6 months .

Under this scenario, you would need to keep the home 60.6 months in order for paying points to be worth the cost. If you don't plan on keeping the home at least that long, then paying points is probably not a good option for you.